Here’s how ‘The fox got into the henhouse.’

“It’s difficult to get a man to understand something, if his salary depends upon his not understanding it.” -Upton Sinclair

This phrase is the most appropriate, if not the exact, to make us think 🤔 how easy it is to accept praise for our part of work than criticism for the same. This situation however reverses when looking at others. Indeed it is fundamental nature of humans. This is however important to think whether this is a fruit or a flaw in our evolution of thinking 💭. This nature was evolved to justify protecting loved ones from the irrational blame of competitors and predators. This trait of ours however may have been advantageous in the past is not so very much in the present times, especially when the circumstances have changed very much.

A particular habit in a circumstance does not necessarily be useful when the circumstances have changed so much. For example, power ⛮ generation from coal was necessary maybe 50 years ago and before that when there were no problems of global warming, but the circumstances have changed so much that it has become a necessity but not yet a conviction of todays generation. If we didn’t change that we might be become extinct in less than a century.

A better way to think of how people behave is:

To understand how our ancestral traits were evolved under different circumstances.

What we would do if our positions were reversed with those whom we criticize.

Think of this, if we’re a financial broker and you know your earnings depend on the brokerages charged from the transactions of your clients how likely are you going to persuade for more transactions. I think 🤔 more and more is the answer. The results are beneficial to the broker, not the investors. That’s why it is correct when Warren Buffet says:

” There’s no reason to pay an expensive management fee to invest in a mutual fund when super-low-cost index funds that mimic large indexes like Standard & Poor’s 500-stock index are available. “

This prolonged characteristic has deep roots and it continues in our financial aspects of life too. The financial pundits including the CA’s, CFA’s and CPA’s whom we consider rational or are expected to be so, not always but very often, surprise us with their irrationality.

I recently attended my Orientation Program (OP) for CA. What is peculiar about that is, someone who has completed his/her CA thinks that he knows everything about finance and investing but he does not. Malcolm Gladwell in his famous book has written …… “We have seen,” Terman concluded, with more than touch of disappointment, “that intellect and achievement is far from perfectly correlated.” Never in the history a Charterd Accountant has made to the Forbes 500 list 📃 by been in the profession.

Intellect and education does not necessarily means ethics. Most of the CA’s are not meant to manage money ethically but unethically. Of course not all are bad but mostly are. No body wants to confront it but they do it. Any finance professional is required to adhere to the ethics especially when managing others money. However, this isn’t what happens. With all the courses nowadays mandatorily impart ethical education, the question is how much that is applied in the real world. Yogi Berra once rightly said, “In theory there’s no difference between theory and practice, but in reality there is.”

Here’s the list of financial scandals in the last forty years only along with number of times they have been involved. These are the ones who have been caught, what about those who didn’t (including large and medium firms). We pass laws thereafter hoping it won’t happen:

(1976-2016)

14 – EY

11 – Arthur

11 – Delloitt

10 – PWC

9 – KPMG

1 – cooper’s and lybrand

1 – Friehling & Horowitz

10 – Unknown or many involved

If history is by any account thought to be a predictor of future to some extent then no matter what we teach in the classroom practicing it outside will not be a reality. It’s not because we want it, it’s because we as humans are not able to control our emotions and partly because it’s the nature of capitalism. People have been robbed more by the financial innovations than by other type of thieves. The fox has gotten in to the henhouse.

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Published by Suresh Kumar Singh

I am a non-academic student of psychology with strong roots in value investing. Professionally, I'm in my article-ship period of CA. I like to read books and books and more books and apply that to my investment philosophy in a simple to explain and understandable manner. The world is not so complex as much it seems and it's not that easy as it looks.
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